DO NOT COPY - pwforex.compwforex.com/trader handbook.pdf · DO NOT COPY 2 Copyright by APSRI @ Mar...

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Copyright by APSRI @ Mar 2006

http://www.make100kprofitaday.com

< A TRADER’S HANDBOOK >

An essential guide to understand the different

specifications of various markets vehicles,

financial instruments and fundamentals.

Syllabus provided by

Acute Precision & Studies Research Inc. (www.PWforex.com)

Written by DAR Wong

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COVER NOTE

Please be informed that the copyright of this book is fully reserved by

the owners namely the author, DAR Wong, and APSRI. You are not

allowed to resell, share or distribute this book without the written

authority of the owners.

This book has suggested retail price at US24.90. You may offer it for

FREE as a part bonus of your sales package or paid member site.

However, you are not allowed to give it away as a stand-alone product

for FREE. Legal action will be taken against those who infringes on this

condition.

The contents of this book are protected under copyright law in your

local country. Hence you are not allowed to edit, change, and reprint

on any partial or whole part of this book without the written authority

from the owners. However, you may register as our affiliate (check

details from website) and earn a referral commission by introducing

others to purchase this eBook package from our website:


If you would like to purchase the master-right of this book at a one-

time payment of USD128, please contact:

[email protected]

This book was written on sole opinions and thoughts of the author.

They are sold for the purpose of information only. Readers who wish to

practice the contents listed in this book may do so are at their own risk

and own discretion. No legal claims, complaints or such action of any

form will be entertained by any 3rd party distributor, sales introducer,

the author, APSRI or all of them.

Print Order

First Edition – Copyright by APSRI @ April 2006

Second Edition – Copyright by APSRI @ Oct 2006

Third Edition – Copyright by APSRI @ Nov 2007

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Contents

Foreword ……………………………………………………………………….……..4

1. Investment vs Risk ……….…………………………………………………….6

Different Types of Market Trading

2. What is Stock Market? …………………….…………………………..……. 10

3. What is Exchange Traded Fund (ETF)? ………………………………….13

4. What is Futures Market? …………………………………………..…………15

5. What is FX Market? …………………………………………..………..……...18

6. What is an Option? …………………………………………………..………..23

7. What is a Swap? …………….………………………………………………… 27

8. What is a Forward? ……………………….………………………………….. 29

Different Types of Financial Instruments

9. Equities and Stock Indices ……………………………………….…………30

10. Financials – Debt Instruments, Interest rates ……………….32

11. Currencies ……………………..………………………………………….34

12. Commodities – Soft commodities, Grains, Livestock ……….35

13. Energies ………………………………..………………………………….36

14. Precious Metals …………………………..……………………………..37

Understanding Leading (Economic) Indicators

15. General Indicators ………………………………………......………..38

16. Income & Expenditures ……………………………..……………....39

17. Cost & Output …………………………..………………………………..40

18. Employment & Unemployment ……………………..……………..42

19. Housing & Real Estates ………………………………..……………. 43

20. Money Supply ……………………………………..……………………. 44

Epilogue ………………………………………………………………………………….. 45

About the author ……………………………………………………………………… 48

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Foreword

Through my years of trading experiences and encounters with many

investors, numerous questions have been forwarded to me regarding

the differences among various types of markets and their purposes.

When I started as a trainee in year 1989 as a trainee in the financial

futures industry, my job was to execute customers’ orders and

administer orders forms. Having spent almost 12 – 14 hours on every

market day watching the numbers, it took me 3 years to learn and

understand the significance of futures hedging and its market

characteristics.

Thus, it is no surprise that laymen are easily confused between stock,

futures, FX and options. Therefore, this book was specially written and

compiled by me to provide such information to all investors and

traders-wannabe in the simplest word format.

Most people opt for insurance policies and unit trust funds as their

investments. The reason for not participating in other markets that

involve trading of financial instruments may be due to ignorance or

fear of risk factor!

Nevertheless, it is also not new to hear from friends and relatives that

someone related has lost big monies in stock market or real-estate

investment, which is supposed to be low risk. Ultimately, money

management is not about what you think you know best. It is what

you know not but can be learn and acquired!

Theoretically, a risk becomes negligible if a trader knows how to

minimize and use it to fish for a big (profit) catch!

Everybody wants to be rich but not everybody knows how to become

rich!

As I mentioned before, laymen tend to mix up the meanings of risk,

investment and gamble. Those gambling activities like buying lotteries

are views as investments; trading in stock markets and margin

instruments are believed as gambles. Lastly, doing anything that will

jeopardize their salaried jobs is considered as big risk!

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I personally believe it is vital for everyone to check their own

investment goal vs. investment need. This will help you to evaluate

which type of investment suits you best in order to achieve the

realistic target that you want. Therefore, I wish this book is able to

shorten the learning curve of readers by enabling them to comprehend

and select the correct investment.

Best regards,

DAR Wong

Acute Precision and Studies Research Inc. (APSRI)

http://www.PWforex.com

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Chapter 1: Investment vs. Risk

In today’s fast changing economy, most people have realized and will

agree that the exponential way to make big monies is through the

possibility of selling products (commodities) to world market. In

another word, bigger market population means bigger potential profits.

Amongst all modus operandi, a sure avenue to receive quick payment

with easy delivery of sales items is definitely considered as a winning

strategy to creating wealth. Such businesses usually involve the sales

of e-products, paper instruments or some kind of financial (paper)

products, via the transaction through online internet or

telecommunication to deal in billions of dollars every day.

Nevertheless, we are not denying other proven ways of traditional

methods as obsolete. Comparatively, we are talking about the

technology platform, operational scale and overheads in order to

justify the Return of Investment (ROI).

In today’s modern economy, people do not believe in single income

source anymore. Almost everyone looks for multiple returns by trying

to adopt various modes of investment when they could still enjoy fixed

income from current employment. Some of the popular, but not limit to

all, of the common choices among consumers’ investments are listed

below:

Stock purchase

Mutual funds (unit trust funds)

Insurance e.g. including life policies and endowment plans

Numismatics and precious metals

Land ownership & real estates

Fixed income instruments e.g. fixed-deposit and bonds

Financial trading in futures and money market

Business investment (as venture capitalist)

Other part-time marketing businesses

The reason for “Stock purchase” to be listed as first choice is because

it is indeed the most popular investment activity amongst folks and

citizens. Many ignorant investors think that the maximum losses in

stock market are the premium they paid for the stock purchase. That is

true of course; but this is also the hidden danger that has been preying

on many rookies!

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More than 75% of retail investors indeed lost their hard earned monies

in stock market!

Alternatively, most retail investors have turned to funds management

companies to take care of their investment needs. The advantages of

pool funds are diversified risk factors, less volatility, less stressful and

steadier returns on prolonged period.

Nevertheless, this flat weighing scale also causes investors to pay

more miscellaneous (management) fee, receive less amount of return

rate (some zero return), limited choice (fixed bucket of instruments)

and no personal decision of market entry / exit.

The topic of discussion here is not about which avenue makes the most

monetary return for investors, but rather which one suits them best.

Whether you manage your own monies (funds) or someone manage

for you, it is high time for retail investors to start do some self-

evaluations as well as investment studies with the intent market.

Leaving monies in other people’s pocket with trust does not

necessarily repay you as what has been promised. In fact, most

managed funds have not paid more than the bank rates over the last

decade!

Alternatively, it may be a blessing if you have finally realized that you

can manage your own portfolio (monies) better than letting others do

it. However, try to understand your personal risk appetite before you

do so.

Risk Appetite = Risk Tolerance + Risk Capacity

Generally speaking, higher risk begets higher returns. Before you

enter any investment, access your risk appetite first! This will help a

great deal in controlling your success or failure eventually.

Ask yourself how much risk you would like to afford for an investment

(risk tolerance) without regretting it later. Then ask yourself again

how much maximum risk you can digest if things (risk capacity) turn

out to be worst.

By accommodating this risk capacity, it is important to emphasize that

the final situation must not affect your personal life as well as overall

financial stability of your family!

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RISK IS EVERYWHERE! It is a matter of understanding it, thence

manage it to your own advantage.

Do not think you are smarter than the market, go and pick up some

workshop training or short courses that might help you to acquire the

correct skills (knowledge). If you think such education on financial

training is expensive, then try ignorance!

Crucially speaking, a risk may not be a risk anymore if you know how

to manage it by zeroing to the most minimal scale. Next, this small

potential risk of loss must be able to leverage on a good scale of

potential profits e.g. 3 times or more. Ultimately, such risk /reward

ratio will make a superb good deal!

Investment is all about “effective education” that includes the

acquirement of field knowledge and field experiences! Take note that

this is different from academic education that teaches only in theory.

Of course there are other essential factors that include persona

charisma. Nevertheless, field experience can only be derived from

participation without giving up.

I have personally encountered many successful individuals who still

make couple of ten thousands to millions of dollars annually in the

stock, futures and FX markets; whilst others complained of having lost

their hard earned monies by picking up tips from 3

rd

parties; some

exclusively still deny the reality of earning monies from financial

investment!

Whether you would eventually want to manage your own investment

or let someone else manage for you, the risk factor of the nature of

investment is no more a threat so long you have the skills to select,

evaluate, control and minimize it for projected return in your

satisfaction.

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Below are some points for self-checks if you have intention to manage

your own funds:

Rick appetite

Investment objective

Business (personal) goal

Personal discipline

Knowledge

Field experience

Market information access

Funds distribution skills

There are only few ways for people to get rich and real wealthy. It is

either they own a profitable business, strike a win-fall, or make some

“true blue” investments that repay them exponentially!

From the above 8 bullet pointers, only the first 3 are considering

factors of individual’s choice. The rest of the valued qualities can be

trained and transferred from a good coach. Most investors could not

care less and leave the funds managers to do these jobs for them! No

one knows your hidden potential until you unlock it yourself!

Do not expect to earn BIG return in dollars when you fail to reduce the

risk to cents! Any deal that bets on 50-50 chance is a gamble. You will

lose your trousers away!

Many investors fail to find a balancing point to effectively control their

investment cum managing their portfolio risk. In my context,

“effective education” is the only tool that can bridge these 2 subjects

together effectively.

The best way to protect investors’ monies is through “effective

education”!

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DIFFERENT TYPES OF MARKET TRADING

Chapter 2: What is Stock Market?

Definition

A Stock Market comprises of a series of public listed companies. Each

company comprises of it own common shares that can be acquired by

public investors as shareholders. Ownership of the stock (called equity)

in a corporation represents an entitlement to claim its proportional

share in the corporation's assets and profits.

Basically, there are two types of shares stock: common and preferred.

Ownership of common shares in a listed company entitles you to

receive dividends and vote in the election of company’s AGM and other

important matters. However, common shares are usually riskier than

preferred stock because the holders will be the final parties eligible to

make claims upon liquidation of the corporation. Due to this higher

risk, it offers greater potential returns compared to preferred stock.

Shareholders (owners) of preferred shares usually do not have voting

rights but are entitled to receive fixed dividends. These dividends are

paid out in lesser amount but always are issued before “common

stock” shareholders.

The price of preferred stock tends to under-value when compared to

its common stock and also dividends will not be paid higher than those

of common stock. However, “preferred stock” shareholders are eligible

to make claims before “common stock” shareholders, should the

corporation file for liquidation.

Stock Option

Commonly known as employee stock, stock option carries underlying

common shares of a corporation whereby it is usually paid out as part

of company’s bonus. However, the holder is not allowed to exercise it

until the maturity date as stated in the contract. Upon being exercised,

the holder has the right to buy its underlying stock at the stated price

and quantity, usually at a price lower than current market; thus

making it profitable if sold in market instantly.

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Market Capitalization

Also known as “market cap”, this figure signifies the overall monetary

value of public shares belonging to the corporation. It is derived by

using the price of a single share multiplied by the total outstanding

shares.

For example, a corporation has 5,000,000 shares and priced at 50

cents per share, then its market cap is $2,500,000.

Stock counters are usually categorized as small-cap shares, mid-cap

shares and large-cap shares. However, it is very subjective to gauge

them as some small players would rate shares value below a dollar as

small-cap while some funds managers would rate share value below

10 dollars as small-cap.

Blue Chips

Blue chips stock refers to established industries with big and reputable

companies earning good annual profits. These stock counters usually

include established institutions, airlines, banks, project developers and

government linked companies. Blue chips are also known as “income

stock” because they fetch very high and regular dividends for

investors.

Dividends

Dividends are the profit-sharing that investors can gain from the

company’s profits or earnings. It is paid in monetary value to the

corporation's shareholders, or stockholders; usually distributed over

quarterly to annual basis.

P/E Ratio

Known as “price earning ratio”, it is the share price being divided by

the earnings per share of the corporation. It is also used to gauge how

many times is a share being overpriced, when being divided by a single

earning.

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For example, if a corporation has 5,000,000 shares and its earning is

$2.5 millions dollars, then the earnings per share would be $0.50.

Assume the share market price of this corporation is $2.00, P/E ratio

of the stock will be derived at (2.00 / 0.50) i.e. 4 times

PE ratio is one important factor to monitor the performance of the

corporation. For instance, the P/E ratio of casino operators and crude

oil processors usually is above 15 or more. The reason for public

investors to buy up the stock at pre-empt escalation is due to its

annual soaring profit. However, it is risky if the stock has an overly

inflated P/E ratio reading.

On the other hand, having a low P/E ratio may indicate as good

bargain for being under-priced but it is due diligence of investors to

find out if such situation is genuine.

Summary

Stock investment is a long term game and it requires capital buffer.

Good selection of established stock will pay good and regular

dividends to investors. Players with gambling attitudes should stay out

of this market unless they possess the skills to spot for break-outs and

run-away formations. Maximum risks limit to the price of stock

purchase as long as players do not engage in contra-trades.

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Chapter 3: What is an Exchange Traded Fund (ETF)?

Definition

An Exchange Traded Fund (ETF) is a security that functions exactly

just like a listed stock and be purchased through a regular stock

broker. Each ETF is a pool of securities that tracks specific market

indices, either based in individual group of industry or in a nation’s

overall growth.

ETFs are trading instruments listed in a centralized market on the

stock market board. It combines the various elements of index funds,

but at much lower cost since it can be managed by individuals. Each

purchase lot is usually comprised on purchasing a standard package of

100 shares.

Diversification

The advantages of investing in ETFs are their diversification in the

whole of combined securities when trader just buys into one index

investment.

ETFs are open-end funds that allow convenience of buy/ sell at the

decision of traders. Dividends will be paid out in pro-rated percentage

with taxation levied in most countries as capital-gain, but only upon

sales profits.

Origin

ETFs were first introduced in 1993 in United States, but only became

very popular in the late 90’s by Nasdaq 100 ETF (QQQQ). At the end of

2005, there were more than 200 ETFs counters publicly listed with

more than USD 300 billion in asset worth.

For certain stock index ETF, it tracks very closely to the underlying

cash index value, thus promoting much liquidity and flexibility for

investors to manipulate their funds in the short-term trading.

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Basically, investors and traders can select between 2 categories of i-

shares board which carries all the stock indices and industrial group

ETFs, or the Power-shares board that carries each and individual

country’s growth funds. Hence, when you buy a power-shares-counter

of a certain country, you are using a single investment to purchase the

overall growth of that country’s economy!

Summary

ETFs are getting very fast popular among retail traders as well as

funds managers. It can include any trading instruments or regional

markets, so long as the demand /supply factors justify the liquidity.

Due to the globalization over internet access, a smart trader may

exercise his ways to enter the global markets in every category of

products, by using the ETF at very los cost.

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Chapter 4: What is Futures Market?

Definition

A Futures Market is a centralized and regulated marketplace

(Exchange) that facilitates the transactions of various futures

contracts.

Futures contracts are defined as contractual agreements made

between two parties through a regulated futures Exchange. Both

parties agree to buy or sell an asset - livestock, a foreign currency, or

whatever listed item - at a certain time in the future but strike at a

mutually current agreed price.

Each futures contract specifies the quantity and quality of the item,

expiration month, the time of delivery and virtually all other details of

the transaction except the traded price, which the two parties will

negotiate now based on current market conditions. Upon expiration,

some futures contracts call for the actual, physical delivery of the

underlying commodity or financial instrument. Others simply call for a

cash settlement to even out the differences upon contract expiration.

Generally speaking, most market players do not hold their futures

contracts until the expiry date but rather offset them by buying back

("short cover") the contracts they have sold (“being short”) earlier; or,

selling back (“liquidate”) the contracts they have bought ("being long")

at earlier date.

Purpose

Due to the fact that commodity prices are constantly changing, literally

all businesses face ongoing risk factor on product pricings. Meat

processors face risk from fluctuating cattle prices, institutional lenders

from changing interest rates and international businesses from varying

currency rates. All these businesses can utilize futures market to help

them manage and reduce exposure to price risk; a counter-action

known as ‘hedging”.

Generally speaking, futures are about anticipating a future price of

whatever basic commodity or financial instrument, based on current

market information.

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For example, futures trading are used by hedgers and investors to

gauge and forecast the price of cattle for next December; interest rates

level among inter-banks in six month’s time; the value worth of a

euro-currency in next quarter; the value of a listed stock index in 12

month’s time, all based on the economic outlook of its country now.

Therefore, hedging is necessary in order to reduce or eliminate the

potential losses (risk) of such business operations.

Products

A futures product can be based on financial instruments (e.g. single

stock counter, stock index, debentures, interest rates etc), agricultural

grains (e.g. soybeans, wheat, oats etc), soft commodities (e.g. coffee,

cotton, sugar, orange juice, palm oil etc), live stock (e.g. live cattle,

pork bellies etc), precious metals (e.g. gold, silver, copper, aluminum

etc), energies (e.g. crude oil, heating oil, natural gas etc) and FX.

The above list is just for your information and may not have included

all futures instruments currently in the global market. In U.S. market,

there is even futures product based on weather for some businesses to

reduce their risk by proper hedging.

Basis

Futures products are also known as “Derivatives” because they are the

futures price of underlying market contract. Therefore, futures

contract can be created out of any commodity so long it has

overwhelming supply / demand factors of the underlying market

instrument.

All the underlying market instruments are also termed as “cash

market” as they are the actual products still trading in current open

market.

The difference of the futures price over the cash price is termed as

“basis”. When the futures price of a commodity is higher the cash price,

the “basis” is positive and we say that the market is trading at a

“premium”. Otherwise, a negative “basis” means the futures price is

lower than the cash price and we say that the market is trading at a

“discount”.

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Case Studies

1) A cattle rancher may fear that cattle prices will decline before he

brings his animals to market for sale. Therefore, he decides to sell

futures on live cattle that will expire at approximately the same time

he expect to deliver his cattle to the buyer.

Because he holds live cattle and is considered “long” in cash market,

his has to engage “short” by selling futures in order to protect himself

against any potential price drop sometime in future. In this case, when

the rancher eventually comes to selling his live cattle, the futures

position will offset the loss if the price of live cattle goes down.

However, if the price of live cattle goes up, the futures position he

entered earlier will incur loss and offset with the cash profits. In such

situation, price fluctuation will have little effect on the cattle rancher.

2) A palm oil seller receives an order to sell 500 Metric Ton (MT) of in

90 days delivery time. However, he only has 300 MT in stock and has

to manufacture another 200MT to meet the delivery term on time, in

order to fulfill his obligations with the buyer.

Because the price has been fixed with the buyer but may go up over a

period of 90 days, he is opened to risk of potential losses in cash

market. In this case, he is considered as “short” cash of 200 MT (of

palm oil) and need to cover himself by buying (“long”) palm oil futures.

At the delivery date, if palm oil price goes up, his cash market loss will

be offset by the futures gain and vice versa.

Summary

Futures trading is a game of high risk with high return based on

margin trading. It can be constructed literally from any instrument so

long it has good supply & demand factors in the underlying market. In

such trading activities, there are unlimited potential profits as well as

unlimited potential risks involved.

Futures markets are essential for hedging activities for certain

business operators while other players take advantage of its high

volatility to make fast monies. Long term investment is not

encouraged due to its structured expiration. Skills, caution and

expertise are required but can be coached in this field.

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Chapter 5: What is FX market?

Definition

The Foreign Exchange Market, also referred to as the "Forex" or "FX"

market, consists of a bucket of currency pairs whereby the price of

each pair is the exposure value of their market price.

Till today, FX market is still the largest financial market in the world,

with a daily average turnover of well over US$3.2 trillion, last quoted

in April 2007 by Bank of International Settlement (BIS) based in

Switzerland.

"FX" means the simultaneous buying of one currency and selling of

another. Currencies are always traded in pairs, for example, Euro

/U.S.Dollar (“EUR/USD”) or U.S.Dollar /Japanese Yen (“USD/JPY”).

Purpose

There are two reasons to buy and sell currencies. About 5% of daily

turnover is from companies and governments that buy or sell products

and services in a foreign country or must convert profits made in

foreign currencies into their domestic currency. The other 95% is

trading for profit, or speculation.

For speculators, the best trading opportunities are with the most

commonly traded (and therefore most liquid) currencies, called "the

Majors." Today, more than 85% of all daily transactions involve

trading of the Majors, which include the “US Dollar” (USD), “Japanese

Yen” (JPY), “Euro” (EUR), “British Pound” (GBP), “Swiss Franc” (CHF),

“Canadian Dollar” (CAD) and “Australian Dollar” (AUD).

Reading FX Quote

In the Foreign Exchange market, currencies are traded in pairs. For

instance, a speculator may trade the Euro versus the US Dollar

(“EUR/USD”), or the US Dollar versus the Japanese Yen (“USD/JPY”).

Reading a foreign exchange quote may seem a bit confusing at first.

However, it's really quite simple if you remember these 3 things:

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1) The first currency listed in the pair is “base currency”

2) The second currency listed in the pair is “counter currency”

3) The value of the base currency is always 1 unit.

The exchange rate represents the number of units of the counter

currency that one unit of the base currency can purchase.

Traders in the Foreign Exchange market are speculating on the

exchange rate between two currencies. Exchange rates measure the

relative strength of one currency to another. Speculators make buy

and sell decisions on currency pairs based on fundamental and

technical analysis, with the intention of the exchange rate moving in

their favor.

The US dollar is the centerpiece of the FX market and is normally

considered the 'base' currency for quotes. In the "Majors", this

includes “USD/JPY”, “USD/CHF” and “USD/CAD”. For the

abovementioned currencies and many others, quotes are expressed as

a unit of USD1 per the second currency quoted in the pair. For example,

a quote of “USD/JPY” 120.00 means that 1 U.S. dollar is equal to

120.00 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it

means the dollar has appreciated in value and the other currency has

weakened. If the “USD/JPY” quote we previously mentioned now

increases to 123.00, the dollar is stronger because more yen are

needed to purchase the same denomination of 1 dollar.

The 4 exceptions to this rule are the “British Pound” (GBP), “Euro”

(EUR), “Australian Dollar” (AUD) and “New Zealand Dollar” (NZD).

However, only the first 3 pairs are mostly traded as “Majors” and

“NZD” is less popular. In such cases, you might see a quote of

“GBP/USD” 1.4300, meaning that 1 British pound equals 1.4300 U.S.

dollars.

In the 4 currency pairs mentioned above, where the U.S. dollar is not

the quoted as base rate, a rising quote means a weakening dollar, as it

now takes more U.S. dollars to equal one British pound, Euro, NZ dollar

or Australian dollar.

In summary, if a currency quote goes higher, that means increment in

value of the base currency. A lower quote means the base currency is

weakening.

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Cross Rate & Price Quote

Currency pairs that do not involve the U.S. dollar are called cross

currencies, but the technicality of reading them is the same. For

example, a quote of “EUR/JPY” 127.50 signifies that one Euro is equal

to 127.50 Japanese yen.

When trading FX, you will often see a two-sided quote, consisting of a

'bid' and 'ask'. It means the best available price at that time for you to

hit them. The 'bid' is the price at which you can sell the base currency

(at the same time buying the counter currency automatically). The

'ask' is the price at which you can buy the base currency (at the same

time selling the counter currency automatically).

For example, if “EUR/USD” is trading at 1.3050 / 1.3053. In this case,

the bid is “1.3050” and the offer is “1.3053”. The difference between

the bid and ask constitutes the spread. In the above example, the

spread is 3 pips, or points. This differential reflects the cost of the

trade for you to either sell at “1.3050” or buy at “1.3053”.

In FX trading, it is commonly understood that the size of trade is

always quoted as per minimum lot of 100,000 units in the “base

currency”, known as 1 lakh. For example, if you want to buy 3 lakh

“USD/JPY”, that means you are buying in USD300,000 at the whatever

exchange rate of Japanese yen at the time of your transaction. Selling

1 lakh of “EUR/USD” means you are selling 100,000 Euro at the

whatever quoted rate to U.S. dollars.

In market practice of base currency in U.S. dollar, 5 lakh are commonly

quoted as “half a dollar” and 10 lakh (i.e. 1,000,000 units) are referred

to as “1 dollar”. Whereas in quotation with Euro as base currency, then

the above example will become “half a euro” and “1 euro”. For pound,

it will become “half a pound” and “1 pound” respectively!

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Case Study

A trader wishes to speculate on “EUR/USD”. Believing that the EUR

will rise against the USD (EUR moves upwards), the trader places an

order to buy “EUR/USD” at a market rate of 1.3050. Let us also

assume that the trader is speculating on 100,000 units of the base

currency (which is the standard lot size used in the universal FX

market). In this case, the trader is speculating on the value of 100,000

Euros with respect to the US Dollar. Accordingly, he finances the

transaction of buying 100,000 Euros by borrowing an equivalent

amount of USD at the rate of 1.3050.

In FX trade, the value of the amount borrowed is a function of the

exchange rate. Since the exchange rate at the time of the transaction

was 1.3050, the market cost for 1 Euro was 1.3050 US Dollars. Hence,

100,000 Euros cost USD130,500 (1.3050 x 100,000). This borrowed

amount of USD130,500 must be paid back when the transaction is

closed.

Let’s assume that the trader is correct in his speculation. The

“EUR/USD” exchange rate moves to 1.3150, 100 pips above the rate at

which the trader entered. If the trader were to close his position now,

the initial 100,000 Euros he purchased at the onset of the transaction

would be sold, and his debt of USD130,500 would be paid off.

At an exchange rate of 1.3150, the trader’s 100,000 Euros are now

worth USD131,500 (1.3150 x 100,000). After repaying the borrowed

amount of 130,500, this leaves him with a profit of USD1000.

The borrowed cost will be computed as swap point interest built-in in

his trade position as each time it is carried overnight across New York

session closing.

Summary

FX trading was formally accessible only by bank dealers and certain

licensed business operators whom commercial activities involved huge

monies exposure. However, it is now almost traded freely by any

countries with free trade economy policy.

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Trade margin is required in FX transactions and potential profits and

risks are similarly unlimited just like Futures market. However, it is the

only market with instruments traded around the clock (market day)

and essentially accessed on universal base by every country. In

broadest term, any place under the sun that has business will have FX

market!

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Chapter 6: What is an Option?

Definition

An “option” is a contractual right, but not the obligation, given to the

holder to exercise a “buy” (for a call option) or “sell” (for a put option)

order for a specific amount of stock, commodity, currency, index, or

debt, at a specified price (the strike price) that was previously

transacted with the option writer.

For stock options, the transaction amount is usually in block of 100

shares. An “option” transaction consists of a buyer, called the “holder”,

and a seller, known as the “writer”.

If the buyer exercises the option contract anytime before expiry, the

writer is responsible to fulfill the terms of the contract by delivering

the shares to the appropriate party. In case of an option contract

delivery with no physical products, it will be settled in cash term.

For the “option” buyer, the maximum potential loss is limited to the

premium he paid to acquire the option contract. When an option is left

to expire without exercising it, the premium spent to purchase the

option will be lost. However, “option” buyer has unlimited upside

potential of making profits. For the writer, the potential loss is

unlimited unless the contract is covered. That means the writer

already owns or enters the underlying market to own the contract as

specified in the option agreement.

The costs of trading options (including both commissions and the

bid/ask spread) is generally higher on a percentage basis than trading

the underlying stock or futures counter. In addition, options are very

complex and require much observation and maintenance in order to

secure profitable hedge for the writer.

A “call” option

This is an option contract that gives the buyer (holder) the right to buy

a stated quantity (as previously agreed in the option transaction) of an

underlying instrument from the writer (seller) of the option, at the

strike price anytime before the option’s expiration date.

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The reason for a trader to buy a call option is because he forecasts the

underlying market price of the instrument to escalate (bull market)

but this market movement must occur within the time frame before

the option expires.

A “put” option

This is an option contract that gives the buyer (holder) the right to sell

a stated quantity (as previously agreed in the option transaction) of an

underlying security to the writer (seller) of the option, at the strike

price anytime before the option’s expiration date.

The reason for a trader to buy a put option is because he forecasts the

underlying market price of the instrument to plunge (bear market) but

this market movement must occur within the time frame before the

option expires.

Strike Price

This refers to a stated price in an option contract that the holder may

exercise against the writer before expiration. When it is being called

upon (exercised), the writer must deliver the fulfillment according to

the option contract agreement to the holder.

In case of call option, the holder will exercise to purchase at the strike

price when the current underlying market price is much higher i.e.

instant profits for holder.

In case of put option, the holder will exercise to short the underlying

market at strike price when current price trades at lower level i.e.

instant profits for holder.

Option Premium

This is the price per share that an option buyer pays to the writer.

Option premium is primarily affected by the difference between the

current stock price and the “strike price”, time decay factor (time left

to contract expiry), and the volatility of the underlying stock. In

general, the smaller price spread between the strike price and the

current underlying market price will compute higher premiums.

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The premium (value) of an option decreases gradually as its gets

nearer to expiration date and eventually becomes worthless. This is

known as “time decay factor”.

Delta & Delta Hedging

Delta is the rate of change in the price of an option relative to its

underlying market instrument. Delta Hedging is a strategy used to

reduce the risk of the option (preserving profits) by offsetting some

long or short positions in the underlying market instrument.

What is listed in an Option contract?

An option contract comprises of the instrument (product) name, the

month of expiration (with date included), Nature of contract (“Call” or

“Put”) or combination of different nature (spread), quantity, strike

price and premium (price to pay).

In-the-money

This is a term used for an option contract that has instant profits if the

holder exercises it as of current market day.

At-the-money

This is a term used for an option contract that breaks even if the


Out-of-money

This is a term used for an option contract that loses monies if the


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Case Study

For example, a trader X felt that price of Stock ABC was firmed and the

trading volume over last few days had been gradually increasing, thus

he decided to buy a call option on this stock.

Let us assume the then stock price was trading at $73.20 and trader X

checked the premium of its option at strike price $78.00 is $80.00. He

paid this price for 10 contracts i.e. $800.00 and the contract expiration

was in 2 months time.

Before the contract expired, the price of stock ABC soared to $87.00

and trader X decided to exercise the call option. By doing so, he longed

10 contracts of stock ABC at $78.00 (strike price) and he could

instantly sell them off in the underlying market with trading price level

around $87.00. Therefore, his profits would be the difference in price

sales i.e. $9.00* per share.

* brokerage fee not included.

Summary

Option trading is a complicated set of trading system. It needs much

converged studies and trainings before a trader know how to manage

it effectively. However, the risk is limited to the price paid for the

purchase but will become worthless if the buyer does not initiate it

correctly.

Due to its difficulty and higher transaction cost, option may not be

ideal for new traders. Writers of options are usually professionals who

have been trained intensively by their employers (financial institutions)

as profit center staffs.

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Chapter 7: What is a Swap?

Definition

In general, a Swap is an agreement to exchange certain streams of

cash flows between 2 parties, over a period of time frame involving

some specified terms mutually agreed. In financial term, a swap can

be an exchange of any instruments so long as the 2 parties involved

mutually agree to so do over a certain period.

The most common type is an Interest Rate Swap.

Interest Rate Swap involves 2 parties in which one side agrees to pay

a fixed interest rate in return for receiving a floating from opposite

side. Interest rate swap involves same currency.

Currencies Swap involves exchange in principal amount of different

currencies but at same inception and maturity. It also includes swap

on interest rates of the 2 currencies involved.

Stock Swap refers to an acquisition whereby the acquiring company

uses its own stock to pay for the purchase of the opposite company.

Purpose

Interest Rate Swap is usually utilized by less creditworthy companies

to facilitate borrowing funds over longer term period at cheaper fixed

rate instead of the initial floating rate given to them on shorter

repayment term (same amount of borrowing). This gives the borrower

more room to plan budget and also more security to the lender.

Currencies Swap is usually utilized by multi-corporations with huge

funds allocating and moving from one country to another. It is not a

trading instrument but rather a type of business operation to move

funds across regions effectively at lowest risk involved.

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Summary

Swaps in financial market are not meant for investors to engage for

trading profits without any commercial operation. They are not

commonly known to individuals except very huge corporations who are

involved in international business projects. Hence, the inclusion of this

topic is solely for readers’ knowledge only.

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Chapter 8: What is a Forward?

Definition

A Forward contract is an agreement made mutually between 2 parties

in which one party is willing to buy and the other party is willing to sell

a commodity at a future date with specified price. Both parties must

fulfill the terms stated in the contract when the date expires.

Products

Forward trading can be used on any instruments (commodities) but

the most common application is on FX market. The reason is because

currency futures market was only constructed since the later part of

twentieth century and prior to that, forward trading in money market

has been extensively utilized.

Summary

Forward trading was precedent to Futures trading. It does not have

much flexibility and work on a decentralized market. However, forward

trading was very popular in FX market a few decades ago when

currency traders needed to secure monetary commodities at a future

date for some kind of physical delivery. With the introduction of

Futures market, forward trading has gradually been discarded.

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DIFFERENT TYPES OF FINANCIAL INSTRUMENTS

Chapter 9: Equities and Stock Indices

Definition

In financial field, equities are defined as stock or securities listed

in the stock market. Each different stock counter consists of

shares that were issued by the underlying listed corporation.

These shares can be traded and accessed by public as their

investment portfolio.

Stock transaction is a centralized mode of trading and strictly

constricted to rules and regulations of the hosted exchange.

For information of stock, refer to chapter 3.

Stock Index is the composite reading of a stock bucket that

consists of certain amount of stock counters. This bucket usually

carries only the blue chips and established stock of corporations

that play important role in the overall economy of a country.

Market players, investors and analysts usually use the Stock

index of a country as a considering factor to gauge its economic

performance and reliability of foreign investment.

Stock Indices that have big and established bucket with high

volatility and liquidity were always converted to futures market

trading because they have been very much welcomed by

speculators and hedgers.

Trading in stock index futures can be accessed in Singapore

Exchange (SGX), Bursa Malaysia Derivatives Bhd (BMD), Hong

Kong Exchange (HKEX), Tokyo International Financial & Futures

Exchange (TIFFE), Taiwan Futures Exchange (TAIFEX) etc.

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Below is a list of some stock indices in the region and western markets:

Nikkei 225 Index

Taiwan Stock Index

Hang Seng Index

Singapore Stock Index

Kuala Lumpur Composite Index

SET 50 Index (Thailand)

KOSPI 200 (Korea)

Dow Jones Index

S&P 500 Index

Nasdaq

FTSE Index (London)

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Chapter 10: Financials – Debt Instruments, Interest Rates.

Definition

A Debt Instrument, also known as “debenture”, is used by

Government or corporations to raise funds by selling a debt paper

whereby interest rates will be paid upon maturity. Examples

include, but not limit to, Treasury Bills / Bonds, Certificates of

Deposits (CDs), Commercial Papers and Guaranteed Investments

Contracts (GICs).

The main difference between T-bills and T-bonds lies in the

period of maturity. From the date of issuance, T-bills have

maturity period ranging from 1 year to 10 years; T-bonds have

long term maturity period ranging from 10 years to 30 years. In

any case among these 2 instruments, investors are guaranteed

with minimal income return (i.e. certain interest rate above prime

rate level) together with the principal repayment upon date of

maturity. Payment of purchase is one-time full payment.

Generally, T-bills and T-bonds are lower risk investments

preferred by investors who begin to plan for their retirement

from middle ages. These instruments are also known as “Fixed

Income Assets”.

Hence, when the central bank prime rate moves, the paper value

of the T-bills and T-bonds have to be adjusted automatically in

order to justify the guaranteed repayment rate promised by the

issuer. For example, reduction in market interest rates will result

in appreciation values of bills and bonds and vice versa. Due to

this theory, debt instruments are available in the market to be

traded among investors and speculators. Of course, futures

market based on these instruments were again constructed and

traded by global market players.

Currently, T-bills and T-bonds issued by Federal Reserves of U.S.

government are heavily traded in futures market of Chicago

Board of Trade (CBOT) by global market players.

Certificates of Deposits are actually known as “time deposits” or

“fixed deposits” offered by banks. They pay slightly higher rates

but require the customers to place the monies for a short (few

months) to mid term (few years) period. Breaking of contract

(withdrawing monies) before the maturity date will incur penalty

charges towards the account holder.

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Commercial papers are unsecured loans underwritten by banks or

private corporation for the borrower to facilitate his short-term

financial needs e.g. invoice receivables or new inventory for sales

output.

Guaranteed Investments Contracts (GICs)are debt instruments

issued by insurance companies for investors to act as their

financial safety net e.g. life policies, compensation plans to cover

against unexpected mishaps. In such investment, the risk is very

low. Nevertheless, the return of investment is guaranteed upon

maturity or event occurrence as stated in policy but not the

principal.

Since U.S. has the biggest financial market and their currency is

one of the most sought after commodities, we always refer the

term “Interest Rates” (in financial and trading field) to the return

rate of those U.S. dollars that were deposited outside the country

of U.S.A., namely “Eurodollars”.

Interest Rate of Japanese Yen that were deposited outside Japan

is known as “Euroyen”.

Such interest rates of major currencies are considered as

financial instruments because of their international exposure,

economy influence and accessibility by global market players.

Futures markets based on Interest Rates are some of the most

popular contracts traded by many global market players e.g.

Eurodollars & Euroyen.

During inflation, prices of bonds will be lower but interest rate

higher in order to contain the inflated economy.

During recession, prices of bonds will be higher but interest rate

lower in order to stimulate the weak economy.

Hedging in interest rates futures can be accessed in Chicago

Mercantile Exchange (CME), Tokyo International Financial &

Futures Exchange (TIFFE) and Singapore Exchange (SGX) etc.

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Chapter 11: Currencies

Definition

Currencies are any form of monies that are circulated in public

market. They are used as intermediaries for people to engage in

trades i.e. buying and selling activities.

Every country has their own currencies marked-up to the value of

their overall economy performance exposure, country reserves

etc.

A currency can only be measured of its value when it is paired up

to read against the value of another currency. Hence, all

currencies are priced and read as a pair.

All currencies are traded in the FX (foreign exchange) market and

this is a universal based market that operates around the clock

except weekends.

Currencies can be traded in spot (cash) markets well as in

futures market whereby traders need to hedge against exposure

in a forward date.

Hedging in currencies futures can be accessed in Chicago

Mercantile Exchange (CME), Singapore Exchange (SGX) etc.

For more information, refer to chapter 5.

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Chapter 12: Commodities

Definition

In financial market and trading, commodities are broadly defined

as products such as soft commodities, grains and live stock

(meats). These 3 categories of products are considered as basic

necessities and hence, subject heavily to supply and demand

factors for both domestic and export markets.

Soft Commodities refer to products like cotton, cocoa, sugar,

coffee, orange juice, rubber, crude palm oil and lumber.

Grains refer to corn, wheat, oat, soybean, soybean oil, soybean

meal.

Live stock refers to meats like live cattle, feeder cattle, leaned

hogs, pork bellies.

Commodities are traded heavily everyday in spot market due to

their universal demand. Therefore, futures markets based on

these commodities have been very useful for raw manufacturers,

producers, exporters and overseas importers for hedging in order

to reduce their exposure risk from unexpected price fluctuations.

Hedging in commodities futures can be accessed in Singapore

Commodities Exchange (SICOM), Bursa Malaysia Derivatives Bhd

(BMD), Chicago Board of Trade (CBOT), Commodities Exchange

(COMEX), Kansas City Board of Trade (KCBT), Minneapolis Grain

Exchange (MGEX), Winnipeg Grain Exchange (WGE) etc.

For more information on hedging, refer to chapter 4.

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Chapter 13: Energies

Definition

Energies are very crucial products since they have limited supply

but have universal demand. In this world, every country is oil-

dependent and energy products are needed in all arenas from

domestic to commercial use, including light and heavy duty

industries.

Therefore, the futures market on energies is one of the most

volatile markets and has highest liquidity from activities

involving bona-fide hedging and daily speculations.

The most popular listed energy products include 6 categories –

crude oil, gasoline unleaded, heating oil, propane, coal and

natural gas.

Crude oil is again categorized into Sweet and Sour crude.

Energies play an important role in the universal markets because

they affect greatly on the economies of all non-oil exporting

countries. Besides Gold, energy products are the few rare

commodities that go in opposite direction in price with almost all

other financial instruments (including currencies).

When energies supply is limited and the prices escalate, they will

affect the bull market of most financial instruments due to the

switch of funds placement. Thus, causing inflation to the markets

that are oil-dependent.

Recession usually follows at the end of inflation, when the

markets of oil products drop from near all time high and other

financial instruments were made to collapse earlier on. Such

fatigue economy usually takes a few years to re-construct and

recover.

Hedging in energies can be accessed in New York Mercantile

Exchange (NYMEX).

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Chapter 14: Precious Metals

Definition

Precious Metals are commodities that are valued as liquid assets.

They can be converted to cash easily at any time on universal

bases.

The commodities listed as Precious Metals include Gold, Silver,

Palladium, Platinum, High Grade Copper and Aluminum.

Among all the above commodities, Gold is most commonly

wanted since it is universally recognized and can be kept as

personal item, compared to the others.

Generally, Gold price will follow in escalation after the oil prices

soar in demand (or limited supply due to some resource

constraint, political reasons etc).

Likewise, whenever investors are unsure of the global market

direction and world economies due to arising situations e.g.

global virus, war-fares, prolonged civil unrest etc., Gold is always

the sought after commodity for consumers to park monies as safe

haven.

Hence, Gold price always hikes whenever an economy is in

inflation. This chain reaction occurs when inflationary economy

causes Gold price to go higher due to uncertainties.

Hedging in Precious Metals can be accessed in Commodities

Exchange (COMEX) and New York Mercantile Exchange (NYMEX).

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Understanding Leading (Economic) Indicators

Chapter 15: General Indicators

Consumer Confidence

This survey is a sample study released monthly and based on a

table representative of 5000 U.S. households.

This figure indicates consumers’ projection and outlook of

economy in near future; thus generating spending activities if

they are optimistic or otherwise if they opt to tighten waist belts.

Index unit in benchmark of above or below 100.

National Savings

This figure is the measurement of personal savings (%) as

disposable income.

High personal savings means lower spending and less fuelling for

retail economy. Low personal savings means high spending from

citizens as economy booster. Of course, negative savings means

citizens are in debt.

Figure unit in percentage.

Weekly Leading Index (monthly)

This is a composite index released monthly, based on the 7 major

indicators – ECRI (Economic Cycle Research Institute) material

price index, mortgage quality , bond quality spread, bond yields,

stock index and jobless claims.

These 7 major indicators are used to read the economy outlook

quickly and reliably. Hence, Weekly Leading Index can be used as

a reading guideline for overall performance in following quarter.

Index unit in benchmark of above or below 100.

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Chapter 16: Income & Expenditures

Per Capita Income

This median figure indicates earning capacity of per citizen over

an average calculation of whole nation.

It means the overall income capability of citizens and economic

growth of the country.

Figure unit usually quoted in USD or in the home currency.

Household Income

This monthly figure is the aggregate of household income of per

family over an average of while nation.

An improvement in figure means better economy with more jobs

and higher salary for overall citizens.

Figure unit usually quoted in USD or in the home currency.

New Order for Durable Goods

This monthly figure indicates the new order of durable goods.

Figure can be very volatile every quarter but may serve as a good

indicator to read future economy outlook.

An increment in new order for durable goods means higher

demand from consumers and higher production from

manufacturers in coming quarter.

Figure unit quoted in billions of dollars

Retail Sales

The monthly figure indicates total amount of retail sales in all

industries.

Directly indicates the overall confidence on consumer spending

whether economy is booming or grey.

Figure unit quoted in million of dollars.

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Chapter 17: Cost & Output

Consumer Price Index (CPI)

This monthly figure indicates the experience of inflation in cost of

living by general public in urban areas.

A high rate of inflation (CPI) has negative impact in bonds and

stock market due to raising interest rates.

Rising interest rate by central bank is a policy to contain inflation

and slow down economy.

Index unit is quoted in benchmark of 100.

Producer Price Index (PPI)

This monthly figure indicates the inflation rate from the producer

s’ cost of manufacture, not including service.

It indicates the rise in price of production in all finished products.

Interpretation of PPI is similar to CPI.

Index unit is quoted in benchmark of 100.

Industrial Production (IP)

This monthly figure is based on the total output of U.S. factories

and mines.

Improvement in IP figure indicates better economy outlook but

overgrowth will trigger inflation.

Figure unit is quoted in percentage.

Gross Domestic Product (GDP)

This quarterly figure is based on derivation of equation shown

below:

GDP = consumption + investment + export – import

In definition, GDP is the measurement of total market value of all

finished goods and services produced and consumed in a country,

together with the investment and government spending. This

again adds onto the total value of export minus value of import.

Growth of GDP in moderation means better economy outlook.


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Gross National Product (GNP)

GNP is basically the same derivative figure as GDP, except that it

does not include the goods and services from foreign producers

but does include the goods and services by local firms that

operate from overseas location.

Not so widely used compared to GDP figure.


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Chapter 18: Employment & Unemployment

Initial Jobless Claims

This weekly figure indicates the total number of unemployed

citizens who filed for the jobless benefits at the close of previous

calendar week.

Weekly indicator to show health of job market.

Figure unit is quoted in number of claimant counts.

Unemployment Rate

This monthly figure shows the ratio of unemployed persons over

the total labor force in a nation.

It is an important indicator to show overall health in the job

market and economy.


Non-Farm Employment Payroll

This monthly figure indicates the number of persons in non-

agricultural jobs.

Leading indicator to show job growth.

Figure unit is quoted in thousands.

Average Weekly Hours (monthly)

This monthly figure indicates the average total working hours (in

a week) of non-supervisory workers on private non-farm payroll.

Figure unit is quoted in number of hours.

Average Weekly Earnings (monthly)

This monthly figure indicates the average earnings (over a week)

of non-supervisory workers on private non-farm payroll.

Figure unit is quoted in dollars.

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Chapter 19: Housing & Real Estates

Housing Starts

This monthly figure indicates the number of new starters to own

private housings.

Moderate growth shows better economy outlook and confidence

of consumers.


New Home Sales

This monthly figure indicates the number of units of new home

sales to first-time ownership of private housings.

A significant figure to show the consumers optimism investing in

housing ownership which requires long-term loan.

Existing Home Sales

This monthly figure indicates the number of units of pre-owned

private housings changing hands among citizens.

Usually indicate an upgrading of current households

Pending Home Sales

This monthly figure indicates the number of private housing units

that is in the process of building, but waiting to be satisfied by

the demands of home buyers.

Generally signifies a market confidence of potential new home

buyers

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Chapter 20: Money Supply

Definition

The total supply of money in circulation in a country is usually

measured by using M1, M2, and M3. They are important

instruments for controlling inflation by those economists.

Since these 3 indicators are inter-link, it is essential to strike a

balance in order to stabilize the economy and keep inflation in

check.

M1 Supply (narrow money)

This figure indicates the total value of money supply including all

currency (bills and coins) held by the public, traveler's checks,

citizens’ monies in checking accounts in banks and credit unions.

Figure unit is quoted in billion of dollars.

M2 Supply

This figure indicates the total money supply including M1, savings

and small time-deposits in banks and overnight repos in banks,

together with monies in non-institutional money market accounts.

A measurement used to forecast inflation rate.


M3 Supply (broad money)

This figure indicates the total money supply including M2, large

time-deposits, repos of maturity more than 1 day, together with

monies in institutional money market accounts.


To view the weekly updated economic calendar, visit link:

http://www.pwforex.com/update.htm

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Epilogue

This book was carefully compiled with selected topics for the readers

to understand and differentiate carious types of markets, trading

instruments and leading indicators.

The subjects included in every section are the popular ones, but not

limited to all in the current market. For example, there are currently

more than 100 types of U.S. economic indicators but only the leading

ones are included because of their impact with the market movements.

Each time an indicator reading is released, it is also referred to as

figure release.

In order to interpret the impact of the figures (indicator reading) on

the market movements, just follow the 4 simple steps below:

1. Before the figure is released, evaluate if its nature is inflationary

or recessionary. For example, CPI and PPI are both inflationary

figures i.e. higher figure reading means inflationary impact will

be expected in market.

2. Check from some data media e.g. Money bulletin in newspapers,

Reuters etc. on general comments on the expected range of

figure reading to be released.

3. On the actual moment of figure release, let us assume the

scenario of CPI, if the figure reading is above the expected range

(consensus) as forecasted by most economists, then the market

will react in direction of inflationary impact. If the figure reading

is within the range of the expected forecast, then most likely the

market will remain inactive. If the figure reading is below the

expected range of forecast, then the market will react in the

direction of recessionary impact.

4.

The points mentioned in clause (3) will be vice versa for other

recessionary figure e.g. unemployment and jobless claims.

It is always the actual figure, after released, when mark-up to the

expected (consensus) figure that constitutes the movement in the

market.

To trade a currency pair, it is the base currency that moves when the

figure to be released is the currency of that hosted country.

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After reading this book, readers will have better comprehension of

their portfolio planning.

Generally speaking, most people dream of getting rich but do little to

initiate their goals. The reason may not be sheer capital-related but

could be due to procrastination, ignorance, indecision, fear or

superstition. Hence, “effective education” is still the most important

factor for guiding investors into the right threshold.

For stock trading, it is important to evaluate your goal and needs

before entry. Usually, selection of established stock is a safe way to

long-termed investment and a wonderful way to retire graciously with

handsome dividends payout. On the other hand, sheer speculation and

target for fast turnover is characteristic of penny stock trading.

Traders are advised to exercise caution for such short-termed

investment in case of incurring losses from over-trading!

Futures trading is not so ideal as investment due to term expiry and

roll-over of contracts. However, this game is highly profitable and can

really rope in big cash if traders exercise caution in risk management.

On the other hand, it is not advisable for customers to delegate their

entry discretion to brokers or involve such trading activities through

sheer opinions of 3

rd

party. Traders with intention to go into futures

trading are advised to personally learn and acquire skills in this field

instead of relying on others.

FX trading is an extremely volatile market, just like the futures market.

However, the trade margin may be lower than in futures trading and

liquidity is almost assured at all time. Traders always have multiple

choices to choose a good institution or broker house that can provide

good price spread, lower margin and trade commission. FX trading is a

wonderful tool to gain profits if risk management skills can be properly

exercised.

Option trading is a difficult task and really needs professional coach to

master in it. Usually, the holder of “call” or “put” option makes little or

no profits due to its high trade cost. Writers are the ones that make

good profits provided they have sound knowledge in hedging in the

underlying market.

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The advantage of option trading subjects the holder to limited loss but

entitles unlimited potential profits. Although this sounds good to

beginners, it has been a fact that huge profits do not come by easily

for option holders.

In any businesses, the probability of making monies boils down to the

proficiency of managing risk involved. Otherwise, it might as well be

compared to buying a series of lottery tickets!

In fact, almost traders agreed that psychology and mindset played an

important role when come to managing your own funds. Therefore, I

feel that having a good knowledge background needs additional

charisma to succeed in financial market trading. All successful traders

or money-making investors do have some special traits for having

reached this milestone.

Readers are welcome to make enquiries if they have query regarding

the contents carried in this book. However, this book serves to provide

only as information and knowledge to readers.

There is always some level of risk involved regardless trading in any

type of markets. No claims shall be borne by the author, publisher,

distributor, any related party mentioned in this book or all of them, in

case of losses from participation in any market trading activities by

readers.

“No one is stupid. It is either laziness or ignorance that hampers on

the journey to your success!”

If you think you can - you can!

If you think you cannot - you always cannot!

Whatever you decide in the end is always right for you. Because it is

your own future!

DO NOT COPY

48



About the Author

DAR Wong holds a professional qualification in NASD series 3 and 5.

He started his career in the financial industry since 1989, with Bank of

America Futures Inc. He experienced multiple roller coaster rides of

various world markets events like Dow Jones market crash (1989),

Soviet military coup (1991), Desert storm (1991), Bull run market

(1992-1995), Barings Bank collapse (1995), Asian currency turmoil

(1997), US-Iraq war (2002) etc.

His past employment record for a decade included many multi-national

companies like Bankers Trust, BZW Inc, Citigroup etc. After traded on

his own personal account from 1996 – 2001, he went into semi-

retirement. Since 2003, he acted as personal financial adviser to few

superb high-net-worth individuals in ASIA countries. Till date, he also

conducts coaching sessions and seminars for Singapore Exchange

(SGX) as well as to the enlarging group of retail traders.

He education and risk management in trading has been widely pursued

from many successful traders in China, (H.K. SAR), Indonesia, Malaysia,

Middles East (U.A.E.), Singapore, Vietnam.

In year 2006, he founded and formed Acute Precision & Studies

Research Inc. (APSRI), with the corporate mission of Create wealth

While Preserving Your Capital.

In today’s modern economy, knowledge and information are two

powerful tools to create unlimited wealth if anyone knows the simple

trick to use them. Education teaches Knowledge. Technology accesses

Information. In APSRI, DAR Wong teaches his trading associates how

to utilize these 2 tools to create unlimited wealth from the financial

markets!

Currently, besides functioning as hedge advisor and trader, DAR writes

as a weekly columnist for The Borneo Post and The Trader’s Journal

monthly publication.

If you have any query after this book, you can reach that author at his

email: [email protected]

<THE END>

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